Uncorroborated third-party statements cannot sustain clandestine removal demands; Modvat-related penalty may be reduced when excessive.

Duty demand for alleged clandestine removal of scrap cannot be sustained on the basis of an uncorroborated lorry driver's statement alone, especially where there is no independent investigation, no purchaser statements, and no supporting documents such as trip sheets. In the absence of the assessee's admission or other reliable evidence, the statement was treated as too vague to establish clandestine clearance, and the demand was set aside. Penalty for irregular Modvat credit was sustained because the credit had been taken on seized goods and later reversed, but the amount was reduced as excessive in light of the limited credit involved.

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Issues: (i) Whether duty could be confirmed on alleged clandestine clearance of scrap merely on the basis of the lorry driver's statement; (ii) whether the penalty imposed for irregular availment of Modvat credit required interference.

Issue (i): Whether duty could be confirmed on alleged clandestine clearance of scrap merely on the basis of the lorry driver's statement.

Analysis: The alleged removals were sought to be established only from the statement of the lorry driver. There was no further investigation, no corroborative material, no statement from purchasers, and no particulars such as trip sheets or other supporting details. In the absence of any admission by the appellant and in the absence of independent corroboration, the statement was treated as too vague to sustain a finding of clandestine removal.

Conclusion: The duty demand based on the driver's statement was set aside in favour of the assessee.

Issue (ii): Whether the penalty imposed for irregular availment of Modvat credit required interference.

Analysis: The irregularity related only to the Modvat credit taken on the seized goods, and the credit had already been reversed. On the facts, penalty was considered leviable, but the quantum was found excessive and was reduced in line with the limited credit involved.

Conclusion: The penalty was sustained but reduced to Rs. 1,000, in favour of the assessee to that extent.

Final Conclusion: The demand for duty on alleged clandestine removal failed, while the penalty was retained only to a nominal extent, resulting in partial relief to the assessee.

Ratio Decidendi: A demand of duty for clandestine removal cannot be sustained on an uncorroborated and vague third-party statement alone, especially where no independent investigation or supporting evidence is produced.

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